Need advice on company car

**jIM_Ohio** · 09-21-2010, 08:43 AM

Originally posted by wincrasher View Post

Currently I use my personal car for business. I simply take the mileage deduction ($.50/mile). Last year I had nearly 50,000 miles - so that was almost $25,000 deduction - off the top.

Buddies have said I should have my LLC buy a car. I could depreciate the car, and charge gas, maintenance and insurance. Sounds more complicated.

I'm not sure I would be better off doing that.

Can you write off the entire cost of the car in the first year, or must it be spread out over several years? Could I buy a new car every year and do that?

Go to IRS web site and look up depreciation

NO you cannot depreciate whole car in one year
The IRS has guidelines for what types of items depreciate over certain amounts of time
It also varies by the accounting method of the LLC and even then you still might have a choice for how to depreciate an asset.

You could also lease the car in name of LLC and possibly just deduct the cost of the lease- but you need to check with IRS to make sure that is a legit expense (leased cars cannot depreciate, but the expense might be a business expense).

**MonkeyMama** · 09-22-2010, 08:12 AM

Do you already have a LLC? Sounds like it.

If so, it's really not that complicated. With the amount of miles you drive, you would probably come out ahead. You could get one credit card to charge all vehicle expenses (easy to track). The vehicle would have to be in the LLC's name. This is what most my clients do (tend to be sole proprietors or S Corps, and they don't even drive that much). Leasing a car would be a much bigger deduction. Depreciation is very limited on cars used in business (about $2700 per year at most, allowed?).

All that said, it just depends. I'd presume you have enough income to benefit from the auto deductions.

On the flip side, you do drive so much that the mileage method may be a bigger benefit to you. If you are not spending $25k on gas, insurance, repairs, tags, car lease (or alternately, car depreciation), then I can see mileage being better in your case. No doubt it is easier - which is something to consider if the actual cost method is only a small benefit to you.

I used to drive about 30k per year for business. The mileage reimbursement my employer gave me (same that you can deduct for taxes) was MUCH larger than my auto expenses. Of course, I had a paid off car.

**wincrasher** · 09-22-2010, 09:39 AM

One of my concerns is that at 50,000 miles a year, cars won't last very long. Right now I'm using a $40k car. Hopefully I can get 3 years out of it. If so, using the mileage deduction, I've gotten $75k out of it - considerably more than the car cost.

I know I'd "make" more if I drove cheaper cars, but I'm not going to do that. If anything, I'd like to find a way that I could drive more expensive cars and still come out even or a bit ahead.
Don't see leasing as an option with such high yearly mileage.

Another option is to just keep rolling them over - buy a new car each year and put 50,000 miles on it and then get rid of it while it still had some value. So if a $40k car was driven for a year, then sold for $25k, then I'd be $10k ahead each year ($15k spent on car, less $25k deduction).

I was thinking that there would be some advantage for the LLC to own the car. But I'm not seeing it - insurance is alot more. Tags and property taxes may be too. Financing is not needed, but probably would be more problematic/complicated for the LLC to get a note. Liability in an accident - may be an advantage to LLC owned - but I carry a $1m auto policy, plus a $2m general liability policy.

So I come back to the standard mileage deduction being the least complicated and greatest benefit way to go.

**safari** · 09-22-2010, 09:50 AM

Originally posted by wincrasher View Post

Another option is to just keep rolling them over - buy a new car each year and put 50,000 miles on it and then get rid of it while it still had some value. So if a $40k car was driven for a year, then sold for $25k, then I'd be $10k ahead each year ($15k spent on car, less $25k deduction).

There is a little problem with your math. When you deduct $25K from your income, you're saving only a percentage of that amount, which depends on your tax bracket. For example, if you're paying 28% in taxes, that deduction will save you $7K, so using your example, if you buy a car for $40K and sell it for $25K, plus $7K back in taxes, the car would cost you $8K.

**wincrasher** · 09-22-2010, 10:09 AM

I understand the tax aspect. It's a bit more complicated than that considering I'm self employed.

What's laughable is all the arguing going on about raising taxes on the "rich" stifling employement by small business. Hiring people is a total write-off as a business expense. Employing people reduces your tax liability, so if there is work, why wouldn't you hire them?

**MonkeyMama** · 09-22-2010, 10:24 AM

wincrasher - yes, I agree with you for the most part.

If you buy a car every 3 years, your depreciation deduction will only be $2700 x 3 (approximately). So, not much benefit to buying.

I've got business clients with no income and assets who lease or buy cars all the time. I doesn't seem like they ask for much to qualify you for a loan. Just as a general observation. (The more broke they are the more expensive/new their cars seem to be!)

This is the type of situation where leasing would make sense - if the miles were more reasonable. The tax deduction is much more generous for leases than car purchases. Which reminds me of another tax strategy - buy the car personally, and then lease it out to the LLC. This is a pretty simple/common tax strategy. In your case, I still think it will be tough to beat the current $25k deduction.

The advice you are getting is well meaning, but just doesn't fit your particular situation.

Need advice on company car